Regulation on Corporate Governance in Commercial Banks

Regulation of the Board of the Central Bank of the Republic of Uzbekistan, registered on 05.07.2000, registration number 943

Date of Entry into Force

15.07.2000

All

01.10.2020

26.02.2019

17.11.2015

30.04.2012

07.05.2011

07.02.2009

15.07.2000

View

Russian
Uzb
O’zb
Uzb|Russian

Document lost its force 01.10.2020

[
OKOZ:
1.
07.00.00.00 Legislation on Finance and Credit. Banking Activity / 07.09.00.00 Tax Legislation / 07.09.02.00 Management in the Tax Sector]
[
TSZ:
1.
Finance / Banks and other credit institutions. Credits]

Republic of Uzbekistan

By the
Board of the Central Bank of the Republic of Uzbekistan (Protocol No. 11/6) July 24, 2000 No. 472

"APPROVED"

REGULATION

ON CORPORATE GOVERNANCE IN COMMERCIAL BANKS

[Registered by the Ministry of Justice of the Republic of Uzbekistan on July 5, 2000, No. 943]

This Regulation loses its force on October 1, 2020, based on the Decision of the Board of the Central Bank of the Republic of Uzbekistan No. 12/9 of May 25, 2020 "On Declaring the Regulation on Corporate Governance in Commercial Banks, as well as Amendments and Additions thereto, as Invalid" (registration number 943-6, dated 30.06.2020).

This Regulation establishes the basic principles for organizing corporate governance in commercial banks in accordance with the Laws of the Republic of Uzbekistan "On the Central Bank of the Republic of Uzbekistan", "On Banks and Banking Activity", "On Protection of Shareholders' Rights and Shareholders", the Decision of the President of the Republic of Uzbekistan No. PQ-2344 of May 6, 2015 "On Measures to Further Increase the Financial Stability of Commercial Banks and Develop Their Resource Base", and the Decree of the President of the Republic of Uzbekistan No. PF-4720 of April 24, 2015 "On Measures to Introduce Modern Corporate Governance Methods in Joint-Stock Companies".

1. GENERAL PROVISIONS

1.1. The concept of "corporate governance" refers to a set of basic activities and rules carried out by members of the Board and other senior management in managing the activities of a commercial bank. At the same time, the concept of corporate governance includes standards of business ethics, a sense of responsibility towards shareholders, and taking into account the requirements of the society in which the bank operates.

1.2. Members of the bank board and managers in commercial enterprises are given the opportunity to act freely in managing the bank. However, the activities of banks differ significantly from the activities of other commercial enterprises. For example, if commercial enterprises carry out operations primarily on the basis of their own funds, commercial banks carry out operations primarily on the basis of attracted funds. In particular, although banks use share capital to maintain their activities, bank activities can lead to the loss of depositors' funds. As a result of the specific role of banks, a comprehensive approach to organizing corporate governance in banks is necessary.

1.3. The main goal of the bank is to direct bank activities to increase its corporate profit in cases permitted by current legislation, aiming at the interests of shareholders.

Based on the bank's charter, they may have additional obligations, such as satisfying the financial needs of the society in which they operate. In satisfying these needs, banks may allocate sufficient funds for activities that do not adversely affect their safe and reliable operations, specifically for the well-being of the society, humanitarian and charitable purposes.

Each bank must develop and implement internal documents on corporate governance that are not contrary to this Regulation, which is aimed at effective corporate governance. The internal document on corporate governance developed by the bank must provide for the procedure for maintaining corporate websites in accordance with the requirements approved by the Decision of the Cabinet of Ministers of the Republic of Uzbekistan No. 176 of July 2, 2014, regarding requirements for corporate websites of joint-stock companies.

2. ROLE OF SHAREHOLDERS

2.1. Types of Shares (Ordinary and Preferred)

Banks organized in the form of joint-stock companies have the right to issue two types of shares: ordinary and preferred shares. Shareholders holding ordinary and preferred shares are considered "owners" of the bank in proportion to their share in the bank's authorized capital. The rights of owners of ordinary and preferred shares differ in accordance with current legislation.

The highest body of bank management is the General Meeting of Shareholders.

For the purpose of protecting the rights and legitimate interests of minority shareholders, a committee of minority shareholders consisting of them may be established in banks.

If actions endangering bank activities are carried out by bank shareholders and these actions lead to the insolvency of the bank, shareholders may be held liable in accordance with current legislation.

2.2. Protection of Rights and Interests of Bank Shareholders

Shareholders holding ordinary and preferred shares have the following rights:

• registration in the register of bank shareholders;
• free use of received dividends;
• receiving dividends from bank profits according to their depot accounts in depositories;
• ownership of a certain part of the bank's property in case of bank liquidation;
• participation in managing the bank;
• obtaining information about services provided by the bank and the prices of these services;
• obtaining full and truthful information about its financial and economic activities in accordance with the bank's charter;
• protecting their rights in court and in the state body authorized to regulate securities;
• joining associations and other public organizations for the purpose of protecting their interests;
• insuring against risks that may arise as a result of losses that may occur on securities received and profits.

Shareholders also have other rights provided for by current legislation and the bank's charter.

2.3. Ordinary shares carry voting rights and give their owner the right to receive dividends, participate in the General Meeting of Shareholders, and participate in managing the company. Owners of ordinary shares have special powers regarding the adoption of decisions related to bank affairs.

2.4. Preferred shares are shares that give their owners the right to receive dividends on shares, as well as, among shareholders, the right to receive first priority the funds spent on shares (in case of bank liquidation).

2.5. Role of the Bank's Audit Commission

The Audit Commission is considered the main means of controlling bank activities for shareholders. The exact number and duties of members of the Audit Commission must be defined in the Bank Charter. The Bank Audit Commission is elected by the General Meeting of Shareholders in accordance with the Bank Charter.

The Audit Commission:

• conducts an audit of the bank's financial and economic activities during the reporting period in cases specified in the Bank Charter and current legislation;
• uses materials from inspections carried out by internal audit and independent auditors during the inspection. In necessary cases, the Audit Commission may refer to primary accounting documents;
• the main duties of the Audit Commission include checking the financial reports prepared at the bank, preparing an objective conclusion on the general financial condition of the bank, and preparing a report on the commission's activities at the General Meeting of Shareholders and before it.

In accordance with current legislation, members of the Management Board cannot be included in the composition of the Audit Commission members.

3. GENERAL OBLIGATIONS OF THE BANK BOARD

3.1. Members of the Bank Board are elected by the General Meeting of Shareholders of the joint-stock bank. Members of the Bank Board representing the interests of minority shareholders of the bank must be included in the composition of the Bank Board.

The Chairman of the Bank Board is elected by the members of the Bank Board from among its members by a majority vote of the total number of elected members of the Bank Board (unless otherwise provided for in the Bank Charter).

The Chairman of the Bank Board with more than 50 percent state share is approved by the Decision of the Cabinet of Ministers upon the submission of the Ministry of Finance of the Republic of Uzbekistan. The Deputy Chairman of the Bank Board is appointed by the Chairman of the Bank Board from among the members of the Bank Board.

The Chairman of the Bank Board organizes the work of the Bank Board, convenes Bank Board meetings, presides over Bank Board sessions, ensures the keeping of Bank Board minutes, and presides over General Meetings of Shareholders.

Despite the significant role of the Chairman of the Bank Board, the entire Bank Board is primarily responsible as reliable persons for conducting bank activities. To fulfill their obligations, the Bank Board is obliged:

• to have and maintain the necessary qualification level, as well as to demonstrate awareness from a team and individual perspective;
• to comply with corporate governance principles in carrying out their activities;
• to rely on a sound, reliable, and independent system of internal control and to carry out effective control over risk management;
• to exercise control over bank operations to ensure adequate control and compliance with the legislation of the Republic of Uzbekistan and banking policies.

3.2. The obligations of the Bank Board include:

• exercising their powers in the interests of bank shareholders;
• managing risks, including risk tolerance target indicators;
• exercising current control over bank activities, proper use of funds, and lending (for the purpose of protecting the interests of depositors, creditors, and shareholders);
• maintaining an acceptable level of capitalization of the bank;
• forming the bank's activity strategy;
• controlling the implementation of business plans adopted for the development of the bank;
• monitoring the profitability of the bank;
• listening to reports on the results of bank activities quarterly.

3.3. To increase efficiency and thoroughly develop issues, the Bank Board may establish specialized committees such as the Risk Control Committee, Remuneration Committee, Ethics Committee, etc. Each committee must be formed on the basis of its charter, which defines its duties and work procedures. For the transparency of activities and increasing accountability, the Bank Board must disclose information about the number of committees, their duties, and composition (including independent members).

31. PROFESSIONAL ETHICS AND ELIMINATION OF CONFLICTS OF INTEREST

31.1. An important factor in achieving the strategic goals of the bank is the activity of the Bank Board and Management aimed at establishing standards of professional ethics of the bank (hereinafter referred to as the Bank's Professional Ethics Code), which defines the following aspects of corporate governance:

• ensuring an effective system of internal control at all levels of the bank's organizational structure, including issues of combating the legalization of income obtained from criminal activities, financing of terrorism, and financing of the proliferation of weapons of mass destruction;
  (Paragraph 2 of clause 31.1 in the edition of the Decision of the Board of the Central Bank of the Republic of Uzbekistan No. 3/12 of February 16, 2019 (registration number 943-5, dated 26.02.2019) — National Database of Legislative Acts of the Republic of Uzbekistan, 26.02.2019, 10/19/943-5/2670-no)

• conducting healthy and safe banking practices;

• protecting the interests of the bank from improper or illegal actions of bank shareholders, officials, and other persons who may affect bank activities;

• compliance with legislation and the bank's own internal documents;

• eliminating conflicts of interest and identifying situations and areas of activity where conflicts of interest may arise;

• setting salaries, bonuses, and incentive payments for employees (including the Bank Board and Management), taking into not only the results of bank activities but also compliance with the Bank's Professional Ethics Code and strategic goals;

• compliance with requirements for bank security and reliability when lending to bank employees and officials;

• the presence of mechanisms that allow employees to express concern about illegal, unethical, or suspicious actions of management and ensure protection from negative attitudes that may be shown by management.

31.2. The Bank's Professional Ethics Code must be communicated to all employees to ensure its positive impact on the level of bank corporate governance, and compliance with it must be ensured at all organizational levels of the bank's organizational structure, including the Bank Board and Management.

31.3. Mechanisms must be developed at the bank to ensure compliance with legislation on preventing conflicts of interest and regulating transactions with bank insiders and affiliated persons.

31.4. Corporate governance in the field of personnel policy involves the presence and compliance with internal documents regarding:

• hiring and dismissal of employees (including bank management);
• rotation of positions and career advancement;
• training of employees (including the Bank Board and Management);
• a system of measures to retain qualified and authorized employees (including management);
• taking measures for non-fulfillment by a bank employee (including the Bank Board and Management) of their duties to the required extent and violation of the Bank's Professional Ethics Code.

32. TRANSPARENCY AND DISCLOSURE OF INFORMATION

32.1. Transparency is considered the most necessary condition for effective corporate governance. Bank management must be open to shareholders, depositors, other interested parties, and market participants. Transparency in bank management allows shareholders, depositors, and other creditors of the bank to monitor the activities of management bodies, maintain the bank's reputation in implementing effective corporate governance, and also provides necessary information for evaluating the effectiveness of the work of the Bank Board and Management.

Banks must disclose information on the main situations related to risk tolerance indicators (without violating necessary confidentiality), the procedure for determining these indicators, and the degree of participation of the Bank Board in this process.

The information being disclosed must be accurate and clear, presented in an understandable form so that shareholders, depositors, other interested parties, and market participants can easily use it. Banks must timely publish the information being disclosed on the bank's corporate website, in the annual report, in interim financial reports, and by other means.

32.2. In addition to the requirements established by legislation on disclosing information about bank activities, the effective corporate governance of the bank involves disclosing information including:

• the structure of bank management bodies (composition, qualifications and experience, powers, obligations, areas of responsibility, work regulations, and membership in committees, etc.);
• the structure of bank property (major shareholders of the bank, shares of foreign investors in the bank's share capital, etc.);
• the organizational structure of the bank and, if available, the structure of the bank group;
• types, terms, and volumes of transactions with bank insiders and affiliated persons;
• the Bank's Professional Ethics Code;
• the bank's policy regarding conflicts of interest.

4. ROLE OF BANK MANAGEMENT

4.1. Bank Management is carried out by the management of the bank's current activities. The obligations of the Chairman of the Management include fulfilling the decisions of the Bank Board and the General Meeting of Shareholders.

The number of members of the Management Board is determined by the Bank Charter.

Usually, the composition of the Management includes the Chairman of the Bank, his deputies, the chief accountant, and the head of the legal service. The heads of the main divisions of the bank may also be included in the composition of the Management.

Candidates for members of the Management must inform the Board if they have been held criminally, administratively, or civilly liable.

4.2. The Chairman of the Management is appointed by the decision of the Bank Board and subsequently approved by the General Meeting of Shareholders. In this regard, the decision on appointing the Chairman of the Management is usually made based on a competition in which foreign managers may participate. Members of the Management are appointed by the Bank Board.
(Paragraph 1 of clause 4.2 in the edition of the Decision of the Board of the Central Bank of the Republic of Uzbekistan No. 3/12 of February 16, 2019 (registration number 943-5, dated 26.02.2019) — National Database of Legislative Acts of the Republic of Uzbekistan, 26.02.2019, 10/19/943-5/2670-no)

The issue of approving the Chairman of the Management elected by the Bank Board is considered at the General Meeting of Shareholders.

The Chairman of the Management must have the necessary qualifications, authority, and discipline to manage bank affairs and must appropriately monitor the activities of the most important employees of the bank.

4.3. Daily control over the bank must be carried out by the Management.

Members of the Management are obliged:

• to comply with the bank policy defined by the Bank Board;
• to review and take measures to eliminate shortcomings and violations identified in the results of inspections conducted by the bank's internal audit service quarterly;
• to conduct a detailed analysis of the results of external audit inspections and inspection reports (inspections) conducted by the Central Bank of the Republic of Uzbekistan.

4.4. The Bank Management is responsible for developing separate types of policies for managing bank activities, including:

• bank credit policy;
• bank liquidity management policy;
• investment policy;
• emission policy.

At the same time, members of the Management are considered reliable persons of the Bank Board and bank shareholders and, therefore, must place the interests of the bank and its shareholders above their own interests.

Chairman of the Central Bank F. MULLAJONOV